CEO’s Letter: We Should Be Better (If CEOs Would Only Join Us)

HRO Today

New HRO Today research reveals interesting findings on the gender pay gap for CHROs.

By Elliot H. Clark

I hate to have to write this column. It is a confirmation that we at HRO Today can be very smart and very dumb—or perhaps just naïve. But, in either case, this is not a pleasant story to tell. A few months ago, we undertook a comprehensive report on CHRO compensation. We have written about it before. The initial premise of the study was to see if there was a correlation between CHRO compensation and a variety of business metrics. We examined the publicly available data on 88 of the Fortune 500 chief HR officers (18 percent of the sample group that meets the criteria for predictive statistical significance). We also interviewed 60 CHROs for the report. We segmented the data using the same methodology as the Fortune 50, Fortune 100, Fortune 200, and the full Fortune 500.

We looked at correlations in the data on overall revenue, market capitalization, and a host of earnings-related metrics (earnings, EBITDA, and earnings per share). Armed with our charts, our graphs, and the purity of our research vision, we dove deeply into the spreadsheets in search of what makes CHRO comp tick.

There is a strong correlation between earnings metrics, total compensation, and non-cash compensation or stock option packages of the Fortune 50. The coefficient correlation for fellow members of the brotherhood of geeks was .79 for total comp and .81 for non-cash compensation. Those are strong, but below the Fortune 50, the correlations fell apart. So, while HR has benchmark data and justification capability for virtually every other job in an organization, the CEO or comp committee of the board does not use the same level of rigor. Most CHROs we spoke to said that after hire, they frequently had to justify their comp plan as they would for all other executives.

In November, we presented the report at our HRO Today Forum in EMEA to a networking session of about 20 HR directors (a title more common in Europe) and 15 other HR execs at the previous level. We were feeling pretty smart that day about the correlation of the Fortune 50 and the alarming lack of correlation of the next 450 enterprises.

Among the attendees were a number of female CHROs, and one of them asked what we had observed with respect to the gender pay gap. We were flummoxed or flabbergasted or some other word that starts with flubbed. We had not even considered the possibility that the executive tasked with eradicating the gender pay gap might actually be subject to one. We went back and re-examined all of the gender-based data. And we discovered a difference in average pay between the male CHRO cohort and the female CHRO cohort of over $200,000 per year and an “unexplainable” gap of 7 percent. According the 2019 Payscale report on compensation, the gender pay gap between men and women of comparable skills and education is about 2 percent. The gender pay gap for CHROs is 350 percent of the overall market pay gap.

How can this possibly be true in the rational universe? It should not be, but it does suggest that CEOs and the comp committees don’t all come to the CHRO to discuss the gender pay gap with “clean hands.” I am not sure what can be done about this, but I know what we can do. HRO Today will communicate this problem to CEOs, and we encourage CHROs to share this with their CEOs and board compensation committees.

HRO Today will do follow-up studies to examine this trend in the future and we will report on market progress. I am both saddened and disappointed to write this column. The cause of this problem is not the CHROs: They address the gender pay gap in their organization. It’s broader market dynamics. I believe that HRO Today can make a positive contribution to this conversation in the future.

So, in an issue about predictions, let me make the following prediction. We can all work together to solve this conundrum. If you have a suggestion about how to help, please go to HROToday.com and get a message to me with contact details and I will personally get back to you to get your assistance.

We have had a wonderful year at HRO Today and I want to thank our readers and advertisers for their attention and ongoing support. We look to next year expecting a year of clear vision because, after all, next year is “20 20.”

Ok, sorry I couldn’t resist the bad joke. Have a wonderful holiday season and a Happy New Year from HRO Today.

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Posted December 19, 2019 in Payroll

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